Fixed Fuel Price Protection allows you to lock in a single fuel price at no up-front cost, based on a nominated volume per month, for up to 24 months in advance.
At the end of each month, a settlement will be calculated based on the variance between your fixed rate and the average price of fuel across the month. Portland will then credit or debit the difference, multiplied by the nominated volume for that month.
As Fixed Fuel Price Protection is based on a monthly transactional settlement, you are still free to purchase fuel from your usual supplier(s), with no change to your daily operations.
Worked Example
Met Transit are a bus company purchasing 100,000 litres of diesel per month. They are looking to fix their costs on a portion of their fuel consumption in order to fix ticket prices. They decide they would like to fix the price of 50% of their monthly volume for the next 3 months, i.e. 50,000 litres per month.
They agree a price of $0.80 per litre (excluding HST) with Portland for the 3-month period. Fixed Fuel Price Protection requires no up-front fee and Met Transit continue to buy their fuel in the normal way from their usual fuel supplier(s).
In month one, geo-political tensions in a major oil producing region heighten, causing the price of oil to rise on supply uncertainty. As a result, the average price of diesel across the month rises to $0.81 per litre.
As the average price is 1 cent higher than the agreed fixed rate, Portland owes Met Transit 1 cent per litre (cpl). On 50,000 litres that is $500 paid by Portland into Met Transit’s bank account (50,000 litres x 1¢ = 50,000 cents = $500).
In month two, oil-producing cartel OPEC agree to cut production, causing a supply shortage in order to boost prices. As a result, the average price of diesel across the month increases further, now to $0.83 per litre.
As the average price is now 3 cents higher than the agreed fixed rate, Portland owes Met Transit 3cpl. On 50,000 litres that is $1,500 paid by Portland into Met Transit’s bank account (50,000 litres x 3¢ = 150,000 cents = $1,500).
In month three, a trade stand-off between two of the world’s largest economies causes growth concern, damaging oil demand. This causes the average price of diesel across the month to fall to $0.79 per litre.
As the average price is now 1 cent lower than the agreed fixed rate, Met Transit owes Portland 1cpl. On 50,000 litres that is $500 paid by Met Transit into Portland’s bank account (50,000 litres x 1¢ = 50,000 cents = $500).